8 November 2011
3QCY11 Results Update | Sector: Capital Goods
ABB
BSE SENSEX
S&P CNX
17,570
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b)
M.Cap. (USD b)
5,289
ABB IN
211.9
908/596
-2/-14/-2
150.0
3.0
CMP: INR708
TP: INR627
Neutral
ABB India's 3QCY11 PAT was below our estimate, though revenue was higher than our estimate. Profitability continues
to be impacted by acute pricing pressure and exit cost associated with legacy rural electrification (RE) projects. Though
higher YoY, the recovery in EBITDA margin is slower than our expectation. Order inflow continues to show healthy growth
(up 23% YoY), boosted by large orders. We cut our CY11 and CY12 EPS estimates by 25% and 6%, respectively, driven
by lower margin expectation.
3QCY11 PAT below estimate:
ABB India reported revenue of INR17.2b (up 28% YoY) for 3QCY11, ahead of our
estimate of INR15.1b. EBITDA margin at 2.9% was significantly below our estimate of 5.5%, hit by rising commodity
prices, acute pricing pressure particularly in the power segment, and losses on legacy rural electrification (RE)
contracts. Net profit was INR222m (up 92% YoY) v/s our estimate of INR587m.
Recovery in margin slower than expectation:
EBITDA margin was 2.9%, against our estimate of 5.5%. All
segments - particularly project-based businesses, which were hit by low margin legacy contracts - witnessed
margin pressure. Despite healthy growth in revenue, the improvement in EBITDA margin (-1% in 3QCY10) is below
our expectation.
Healthy growth in topline across segments:
All segments reported healthy growth in topline. Power Systems
grew 39% YoY while Power Products grew 25% YoY. Process Automation posted strong growth of 27% YoY while
Low Voltage Products and Discrete Automation grew 34% and 26%, respectively. Growth in Power Products was
favorably impacted by a low base.
Order book flat YoY; order intake boosted by large orders:
ABB's order intake grew 23% YoY to INR25b,
boosted by large orders. Order book currently stands at INR91.5b, flat YoY, while BTB stands at 1.2x TTM sales.
ABB is seeing healthy traction in power T&D, particularly ordering from PGCIL. The investment climate remains dull,
resulting in delayed decision making by clients.
Valuation and view:
We have downgraded our earnings estimates by 25% for CY11 and by 6% for CY12. We
maintain
Neutral,
with a revised target price of INR627 (30x CY12E EPS).
Dhirendra Tiwari
(Dhirendra.Tiwari@MotilalOswal.com); Tel: +91 22 3029 5127
Deepak Narnolia
(Deepak.Narnolia@MotilalOswal.com); Tel: +91 22 3029 5126

ABB
3QCY11 results below expectations; margins remain under pressure
3QCY11 PAT below estimate:
ABB India reported net profit of INR222m (up 92%
YoY) for 3QCY11, much below our estimate of INR587m, though revenue of INR17.2b
(up 28% YoY) was ahead of our estimate of INR15.1b.
Margins continue to disappoint:
EBITDA margin at 2.9% was significantly below
our estimate of 5.5%, hit by acute pricing pressure, particularly in the power segment
and losses on legacy rural electrification (RE) contracts. Margins have been subdued
for the second consecutive quarter, after showing signs of improvement in 1QCY11.
All segments experienced margin pressure, particularly project-based businesses, which
were hit by acute pricing pressure and low margin fixed price contracts.
Healthy growth in revenue across segments:
All segments reported healthy
growth in topline. Power Systems grew 39% YoY while Power Products grew 25%
YoY. Process Automation posted strong growth of 27% YoY while Low Voltage
Products and Discrete Automation grew 34% and 26%, respectively. Growth in Power
Products was favorably impacted by a low base.
Order intake boosted by large orders:
ABB's order intake grew 23% YoY to
INR25b, boosted by two large orders from Bhilai Steel (INR3.3b) and UP Power
Transmission (INR8.2b). For 9MCY11, order intake grew 21% YoY to INR60b.
Order book still contains INR310m worth orders relating to RE works:
ABB's
order book currently stands at INR91.5b, flat YoY while BTB stands at 1.2x TTM
sales. Order book still has rural electrification (RE) work worth INR310m, down from
INR470b in 1QFY12 and INR1b at the beginning of the year. This puts profitability in
the next couple of quarters at risk. ABB India, in consortium with ABB Zurich and
BHEL, has bagged an order worth INR56b from PGCIL for setting up a HVDC line.
ABB India's share stands at ~INR6.5b. The current order book does not include this
amount; it will be included only after financial closure.
Robust growth across segments; execution strong
Revenue (INR m)
25,000
20,000
15,000
10,000
5,000
0
Grow th YoY (%) - RHS
80
60
40
20
0
-20
Recovery in margins slower than expectation
EBITDA (%)
Source: Company/MOSL
8 November 2011
2

ABB
Order book flat YoY; order intake boosted by large orders
ABB's order intake grew 23% YoY to INR25b, boosted by two large orders from
Bhilai Steel (INR3.3b) and UP Power Transmission (INR8.2b). For 9MCY11, order
intake grew 21% YoY to INR60b. Order book stands at INR91.5b, flat YoY while
BTB stands at 1.2x TTM sales.
ABB India, in consortium with ABB Zurich and BHEL, has bagged an order worth
INR56b from PGCIL for setting up a HVDC line. ABB India's share stands at
~INR6.5b. The current order book does not include this amount; it will be included
only after financial closure.
The investment climate remains dull, particularly in infrastructure-related projects,
where decision making has slowed down. As a result, large corporates are holding on
to cash. High interest rates are also proving to be a deterrent to medium-size projects
although large and small projects are relatively unaffected.
The company is seeing healthy traction in power T&D, particularly with respect to
orders from PGCIL.
Order intake at INR25b (up 23% YoY), boosted by large orders BTB of 1.2x TTM revenue, range-bound for several quarters
Order intake (INR m)
30,000
25,000
20,000
15,000
10,000
5,000
0
Grow th (YoY,%) - RHS
100
75
50
25
0
-25
-50
Order book (INR b)
BTB (x, TTM)
Source: Company/MOSL
Recovery in margins slow, despite healthy growth in topline
EBITDA margin at 2.9% (v/s -1% in 3QCY10 and 3.9% in 2QCY11) was significantly
below our estimate of 5.5%. All segments experienced margin pressure, particularly
project-based businesses, which were hit by acute pricing pressure and low margin
fixed price contracts.
Despite continued strong growth in revenue (up 36% YoY YTD), profitability in Power
Systems improved marginally from -0.7% in 3QFY10 to 0.4% in 3QFY11. The
division's profitability has been significantly hit by exit cost from rural electrification
(RE) projects and execution of fixed price large orders of long gestation period, leading
to project cost escalation in the current environment of rising commodity prices.
Margins of Power Products segment continue to be under pressure due to extremely
competitive business environment and rising commodity prices.
Process Automation margins improved to 2.3% in 3QCY11 from -2% in 3QCY10,
but declined by 280bp on a QoQ basis.
Margins in Low Voltage segments deteriorated significantly due to acquisition of new
businesses.
In Discrete Automation, margins improved on a QoQ basis but deteriorated on a YoY
basis mainly due to an exceptionally high base during the last year (3QCY10).
8 November 2011
3

ABB
Segmental Analysis (INR m)
1QCY10
Discrete Automation and Motion
Revenue
EBIT
EBIT Margin,%
Low Voltage Products
Revenue
EBIT
EBIT Margin,%
Process Automation
Revenue
EBIT
EBIT Margin,%
Power Products
Revenue
EBIT
EBIT Margin,%
Power Systems
Revenue
EBIT
EBIT Margin,%
3,960
106
2.7
973
-7
-0.8
2,866
303
10.6
4,318
359
8.3
3,825
-485
(12.7)
2QCY10
3,649
461
12.6
1,034
-3
-0.3
2,259
208
9.2
4,441
284
6.4
4,173
-212
(5.1)
3QCY10
3,445
484
14.0
1,039
40
3.9
2,180
-41
(1.9)
3,992
-28
(0.7)
3,919
-28
(0.7)
4QCY10
4,880
271
5.6
1,440
-12
-0.8
4,582
346
7.6
5,404
204
3.8
6,349
-381
(6.0)
1QCY11
4,174
509
12.2
1,297
104
8.0
3,298
217
6.6
4,400
214
4.9
5,723
17
0.3
2QCY11
4,211
320
7.6
1,275
125
9.8
2,937
150
5.1
4,688
220
4.7
5,077
-35
-0.7
3QCY11
4,344
459
10.6
1,391
29
2.1
2,781
64
2.3
4,976
164
3.3
5,452
YoY %
26.1
-5.1
-348bp
33.8
-28.0
-179bp
27.5
nm
416bp
24.6
nm
402bp
39.1
23
nm
0.4
113bp
Source: Company/MOSL
Valuation and view
We have downgraded our earnings estimates by 25% for CY11 and by 6% for CY12 in
light of slower than expected margin improvement. At 34x CY12E EPS, the stock appears
expensive. We maintain
Neutral,
with a revised target price of INR627 (30x CY12E
EPS).
8 November 2011
4

ABB
ABB: an investment profile
Company description
ABB is a worldwide leader in the power Transmission &
Distribution and Process Automation space. ABB India is
a 75% subsidiary of ABB, with focus on power T&D.
Besides power T&D, Automation Products and Process
Automation are its larger areas of operation. It mainly caters
to industries like oil & gas, metals & minerals, power etc.
Power T&D and automation contribute 60% and 40%,
respectively to its revenue. Power T&D includes Products
and Project services like switchgear, transformers, motors,
generators, balance of plant activities, etc.
Key investment arguments
Current order backlog at INR91b, book-to-bill ratio of
1.2x TTM revenue.
Technology leadership due to strong parentage.
Key investment risks
Continued pressure on profitability across business
segments. ABB India's performance continues to be
impacted by provisions towards exit costs on rural
electrification projects, increased competitive intensity,
execution headwinds, pricing pressure, etc.
Loss of market share to Indian and foreign players in a
growing T&D market in the country as ABB's TTM
order intake declined 5% YoY.
Valuation and view
We have downgraded our earnings estimates by 25%
for CY11 and by 6% for CY12 in light of slower than
expected margin improvement. At 34x CY12E EPS,
the stock appears expensive. We maintain Neutral, with
a revised target price of INR627 (30x CY12E EPS).
Sector view
We remain Neutral on the sector.
Comparative valuations
ABB
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY12E
FY13E
FY12E
FY13E
FY12E
FY13E
FY12E
FY13E
78.3
33.9
5.8
5.0
1.9
1.5
42.8
20.7
Siemens
29.6
23.4
7.0
5.8
2.2
1.7
17.2
13.2
Crompton
13.8
9.8
2.3
1.9
0.8
0.7
8.1
5.9
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
CY11
CY12
9.0
20.9
Consensus
Forecast
15.1
22.6
Variation
(%)
-40.4
-7.7
Target Price and Recommendation
Current
Price (INR)
708
Target
Price (INR)
627
Upside
(%)
-11.4
Neutral
Reco.
* For ABB, FY12 is CY11 and FY13 is CY12
Stock performance (1 year)
ABB
1,000
Sensex - Rebased
Shareholding Pattern (%)
Sep-11
Promoter
Domestic Inst
Foreign
Others
75.0
12.8
3.3
8.9
Jun-11
75.0
12.4
3.4
9.2
Sep-10
75.0
12.0
3.2
9.9
900
800
700
600
Nov-10
Feb-11
May-11
Aug-11
Nov-11
8 November 2011
5

ABB
Financials and Valuation
8 November 2011
6

ABB
N O T E S
8 November 2011
7

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